• Cognizant Reports U.S. Consumer Goods: The Case for Putting Analytics at the Core Executive Summary Meanwhile, the recession introduced impor- In the ever-evolving digital era, companies are tant changes in consumer behavior. Consumers inundated by unprecedented amounts of data are now more careful about selecting products — generated internally, as well as externally. that deliver maximum value for the money, and Importantly, organizations have come to realize green goods are gaining in popularity across age that this data holds the key to solving many groups, with the millennial generation2 leading problems inside their four walls, and beyond. the way. Consumers have begun relying on their This understanding, coupled with advancements smartphones and mobile access to the Web and in analytics technology, is pushing companies social networks to help them research product to derive insights from raw data and boost attributes and prices. Social media’s growing decision-making across their organizations influence on consumer buying behavior is forcing in ways that drive business performance and companies to venture into the terrain of integrat- competitive advantage. As the U.S. economy ing social and traditional channels. Companies struggles out of the recession, consumer goods are also realizing they need to innovate to remain (CG) industry players are under increasing competitive. pressure to extract further efficiencies. Factors such as rising input costs have The rise in social and mobile technologies has significantly affected margins, and for a variety also caused an explosion of data, which if prop- of reasons, CG companies have not raised prices erly leveraged can help CG companies understand to fully compensate for these increased costs.1 consumer behavior and drive innovation, as well as guide companies to begin strategically thinking The recession was officially declared over in about extracting much-needed efficiencies from June 2009 by the National Bureau of Economic operations and alleviating margin pressures. For Research, but this pronouncement was not starters, companies need to build an infrastruc- accompanied by improved market conditions ture for collecting and analyzing the huge data for CG players. Despite consumption exceeding volumes generated by social and mobile sources pre-recession levels during 2011, high unemploy- and creating a single version of the truth across ment and repeated aftershocks have conspired various departments that spans structured and to create anxiety over the future. unstructured formats. cognizant reports | february 2012 Going forward, we believe CG players will benefit by The value of shipments has increased over the putting analytics at the core of their endeavors to: past year (see Figure 2, next page), but long-term profitability remains a concern. • Engage with customers at the right place and time to enhance brand awareness. Confronted with this scenario, CG manufacturers • Identify niches that can be targeted with have taken to emerging markets in their search specific products. for growth and are focusing on creating efficien- • Innovate to meet evolving consumer needs. cies to combat margin pressures.3 In domestic and • Use data to identify areas of inefficiencies foreign markets alike, manufacturers are seeking and improve performance. insights into customer behavior to understand • Harness the power of cloud computing to their evolving needs. There is also a concerted enhance internal analytics capabilities. effort to create efficiencies in the supply chain. CG companies have caught onto the idea of big data supply chains capturing insights from across Economic Forces the organization to reduce latency and optimize Weak economic growth presents the biggest inventory. challenge for CG manufacturers. Even as the heavily medicated economy struggles to get back on its feet, new shocks, such as renewed fears of Customer Behavior Shifts a double-dip recession, have spread a cloud of One of the notable impacts of the U.S. financial doubt over future growth. crisis was the dramatic shift in consumer buying behavior. The household savings rate has trended Persistently high unemployment, combined up over the past few years and is expected with wage gains that have remained below the to reach 10%, according to some estimates. inflation rate, have negatively impacted con- The recession forced consumers to look sumer spending. Growing commodity prices have for more value and purchase lower priced added to manufacturers’ woes (see Figure 1). products. However, despite overall consumer Importantly, industry players have found it expenditure returning to pre-recession levels, the increasingly difficult to pass on these price demand for value has remained. Daily spending, increases to consumers. According to McKinsey as reported by consumers, remains below 2008 & Co., commodity prices increased by 40% levels (see Figure 3, page 4). between 2002 and 2007, but manufacturers passed on only 15% of this to consumers, result- Adjusting to this change is of prime importance ing in a 75% contraction in the sector’s margins. to CG companies. Not surprisingly, responding Rising Commodity Prices CG manufacturers have not raised consumer prices to fully compensate for higher costs. 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 Percentage Growth in Prices 0.5 0.0 Q4 2001 Q4 2002 Q4 2003 Q4 2004 Q4 2005 Q4 2006 Q4 2007 Q4 2008 Q4 2009 Q4 2010 Q1 2011 Fuel oil, per gallon Milk, per gallon Eggs, per dozen Ground chuck, per pound Source: “2011 Financial Performance Report,” Grocery Manufacturers Association and PricewaterhouseCoopers Figure 1 cognizant reports 2 to this situation ranks high on the agenda of innovate their way out of this sticky situation CG CEOs, including the need to develop products (see Figure 4, next page). that consistently deliver value at lower prices. Such a situation is bound to put further pressure The ever-increasing volumes of data, gener- on margins. ated internally and from external sources, has emerged as an important driver toward this goal. Meanwhile, millennials are taking a whole new More than ever, CG companies are looking at the approach to the way they search, compare and data generated on a daily basis in the supply buy products. These young consumers use tech- chain and at the retailer’s end to flesh out useful nology to meet their need for buying the most insights. suitable products. They are tech-savvy, active on social networks and likely to keep their options CG companies have always strived to under- open as far as brand loyalty is concerned. The stand customer needs. As the digital shopping mobile phone has played a catalytic role in the era evolves, they are working even harder to rise of this tech-savvy consumption behavior. gain new insights into what customers want by Growing adoption of smartphones, coupled with engaging with them everywhere, such as at the increased use of the Internet on these devices, point-of-sale in the physical and virtual worlds. has meant that information critical to shopping is Working closely with retailers is essential available on demand. No wonder holiday season to achieving these insights, and it also helps sales through mobile devices more than doubled create efficiencies across several areas. in 2011 over the previous year.4 Adoption of downstream data reporting, supported by technologies such as demand For CG companies, this is a critical development. signal repositories (DSRs), has increased over Future growth will depend, to a great extent, on the years as retailers have begun to realize the how well they exploit the customer engagement benefits of sharing data with suppliers. For opportunities that accompany the rise of these suppliers, the ability to better forecast demand new channels. means they can adapt their procurement strategies accordingly. Leveraging Data Mobile devices such as tablets are gaining The problem of creating efficiencies in a traction within CG companies, many of whom troubled economy while meeting evolving believe mobility boosts productivity across consumer demands has no single solution. the spectrum of their operations. Access to CG companies are realizing they will have to consolidated data on the move saves time and Monthly Value of Shipments in CG Industry Shipment values are steadily increasing for CG manufacturers. 130 125 120 115 110 Millions of dollars 105 100 0 0 0 Mar-11 Mar-10 Sep-1 Dec-1 Jun-1 Dec-07 Mar-09 Sep-09 Dec-09 Mar-08 Sep-08 Dec-08 Jun-09 Jun-08 Source: “2011 Financial Performance Report,” Grocery Manufacturers Association, PwC Figure 2 cognizant reports 3 U.S. Consumer Spending Self-reported daily spending is rising but not to pre-recession levels. $120 $114 $110 $90 $89 $81 $76 $75 $74 $70 $72 $72 $65 $59 Monthly average $58 $59 $59 $50 $30 Jan-2008 Jan-2009 Jan-2010 Jan-2011 Jan-2012 Monthly average Based on Gallup Daily tracking of the amount Americans say they spent the day before at stores, restaurants, gas stations and online, excluding the purchase of cars and homes, and payments on normal household bills. Source: Gallup Figure 3 enables faster decision-making on the manufac- Where Improved Analytics Can Help turing floor and in the field. A booming market There is data, and then there is data that improves for applications that boost productivity is also decision-making. The latter results from filtering playing its part. key bits of information to derive insights, using advanced analytics. This is what CG manufac- Companies that have taken a lead in this area turers are striving to achieve. Analytics is by no are planning for the long term and are putting means new to the industry, but the breadth of in place the necessary infrastructure, which its application is widening, driven mainly by the includes the ability to capture a single version of increased availability of data on everything from the truth, analyze it and share insights across the supply chains, to customers (see Figure 5, next organization.